Split-Dollar
Uses a policy's cash value as collateral for business liquidity.
Business split-dollar life insurance policies can be used to set up lines of credit for liquidity in a business. In this strategy, the cash value of the life insurance policy can serve as collateral to secure a loan or line of credit from a bank or financial institution. This allows the business to access liquidity without needing to liquidate other assets.
By using the cash value as collateral, the business can gain access to funds for operational needs, investments, or unexpected expenses, while still maintaining the life insurance policy for future use. This approach can provide a flexible source of liquidity while preserving the policy’s benefits, such as tax-deferred growth and eventual death benefit payouts.
Educational content only; not tax, legal or investment advice. Life insurance strategies depend on underwriting, policy design and the issuing carrier; guarantees are based on the claims-paying ability of the insurer. Policy loans accrue interest and reduce the death benefit and cash value if unpaid. Talk with your own qualified professionals before acting.
Common Questions About Split-Dollar Life Insurance
What is split-dollar life insurance?
Split-dollar is an arrangement where a business and an owner or executive share the cost and benefits of a permanent life insurance policy. It is often used to provide a valuable benefit to key people or to move wealth to the next generation.
What are the main types of split-dollar?
Under an endorsement arrangement the business owns the policy and endorses part of the death benefit to the executive. Under a collateral assignment or loan regime arrangement the executive or a trust owns the policy and the business's premiums are treated as loans.
How is split-dollar related to corporate-owned life insurance (COLI)?
When the business owns the policy, as in endorsement split-dollar, it is a form of corporate-owned life insurance. The tax treatment depends on the structure, so these plans should be set up with a CPA and attorney.
Educational content only; not tax, legal or investment advice. Talk with your own qualified professionals before acting.
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